July 19, 2021
There are plenty of things you might need to know about the FHA mortgage insurance premium, but if you are a first-time home buyer there are some aspects about this you should know about as early as possible so you can make the most informed choices possible about your home loan, what to finance, and how much to save.
Learn Your Options
Getting ready for a home loan means learning which items you have the option of including in the loan amount and how much you will pay over the lifetime of the loan on interest rates on the amount of your loan AND the add-ons you choose to include.
And that’s where understanding FHA mortgage insurance becomes very important.
One thing some people initially get confused over? Mistaking PMI or private mortgage insurance with the FHA Mortgage Insurance Premium. PMI is not the same, and is not required on FHA mortgages. The FHA Mortage Insurance Premium IS required monthly, and there is also an up-front premium to pay, too.
How Long You Will Pay
FHA mortgage insurance is generally applicable for either 11 years or the duration of the home loan, depending on variables such as loan term.
As mentioned above, PMI is not required on an FHA mortgage but it is required on conventional loans in typical cases unless you make a 20% down payment.
Home Loan Myth Busting
Do borrowers get confused because they assume that you can pay 20% down on an FHA mortgage and avoid mortgage insurance altogether the way you can with a conventional mortgage?
Yes, they do.
This is not true. You cannot pay 20% down and avoid mortgage insurance an an FHA mortgage. There is an up front payment and a monthy payment required.
FHA loans require UFMIP, or the Up-Front Mortgage Insurance Premium or UFMIP, and you can either pay it in full at closing time in cash or finance it into the loan amount.
Paying In Full
Here is where knowing that bit of information about when and how to pay comes in–first-time home buyers are often surprised to learn their 30-year loans (or any other loan term for the FHA loan) require this payment in full no matter what method is chosen.
You cannot partially pay the Up Front Mortgage Insurance Premium or partially finance it. That is why its good to decide early what you will do with this expense–you may need extra time to save up to pay it up front in cash if you choose that route.
Remember that your home loan journey needs to start as early as possible so you can save the most money, work on establishing the best habits to improve your credit, and getting your finances ready by working to reduce your debt ratio and lower your credit card balances.
Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we’ll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner’s Insurance
Step 9: What to Expect at Closing
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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